EUR (1.171) ▼

▪ EUR declined last month as investors appear to be profittaking due to concerns that the bloc’s currency has become too strong. In addition, fragile risk sentiment on rising COVID-19 infections has triggered flows into safe haven assets, prompting EUR to further weakened against the USD.

▪ Fears over Eurozone’s economic performance in the coming months and further escalation of the virus in most European countries is expected to cap the upside for the EUR this month. Furthermore, market volatility due to the US political uncertainty could further weigh on the EUR.

GBP (1.283) ▼

▪ GBP tumbled to its lowest level since July. The sterling was pushed down by rapidly deteriorating UK-EU trade talks – following Britain’s violation of the Brexit Withdrawal Agreement – and a resurgence in COVID-19 cases prompting new nationwide restrictions.

▪ GBP will continue to be pressured by Britain’s worsening COVID-19 outlook, the rising likelihood of a no-deal Brexit, and a transition into a Job Support Scheme widely believed to be insufficient to curb unemployment. A sustained USD rally, supported by falling global risk appetite, may also weigh on the cable.

AUD (0.712) ▼

▪ AUD depreciated, hitting its weakest level since July on a weaker than expected 2Q20 GDP and a dovish RBA Debelle’s speech, which signalled the prospect of further policy easing and currency market intervention. These negates the support arising from the rosy China’s economic data.

▪ AUD may depreciate further as the US presidential debates took the centre stage, possibly leading to a riskoff mode, masking the impact of the gradual easing of lockdown measures in Victoria amid flattening COVID-19 infections’ curve.

NZD (0.658) ▼

▪ NZD depreciated in September, buoyed by US dollar appreciation amid surging COVID-19 cases globally despite RBNZ’s decision to keep interest rates unchanged at 0.25% and retained its Large Scale Asset Purchase (LSAP) limit at NZD100.0b.

▪ NZD is expected to remain vulnerable due to the global COVID-19 resurgence, risk-off mode sentiment and further weigh by RBNZ hints that it would be ready to bring negative interest rates on the table.

Source: Kenanga Research - 1 Oct 2020